• Friday, June 21, 2024
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The $5.7bn money changers market in Nigeria

BDCs seeks CBN’s support to meet retail end FX demand

What is Bureau De Change (BDC)?

A Bureau De Change (plural Bureaux De Change) or currency exchange is a business where people can exchange one currency for another. Most Bureaux De Change are often located at airport, large stores/commercial business areas—namely, anywhere there is likely to be a market for people needing to convert currency. They are particularly prominent at travel hubs.

Business Model of a BDC
A Bureau De Change is a business which, in competition with other similar businesses, makes its profit by buying foreign currency (FX) and then selling the same currency at a higher exchange rate.

It may also charge commission or fee on the purchase or sale. In setting its exchange rates, the business would keep an eye on changing market conditions, as well as the rates quoted by competitors, and may be subject to government foreign exchange controls and other regulations.

The exchange rates charged at bureaux are generally adjusted to ensure a profit. The rate at which a bureau will buy currency differs from that at which it will sell it.

Nigeria’s $5.7bn BDCs market

Before this recent decision, the apex bank was channeling $5.7 billion (about N2.346 trillion) annually through the Bureaux De Change (BDCs). The CBN had been selling $20,000 per week to each of the 5,500 BDCs across the country, amounting to $110 million per week.

Read also: Naira opens steady after CBN hammer on BDCs

CBN cancellation of dollar sales to BDCs

The Central Bank of Nigeria (CBN), on Tuesday, July 27 announced the stop of forex sales to Bureau De Change (BDCs) operators. Godwin Emefiele, CBN Governor who disclosed the new policy after the July 2021, Monetary Policy Committee (MPC) meeting in Abuja said the CBN will no longer continue registration of new BDCs as subsequent forex will be channelled through commercial banks.

Commercial banks take the role

As part of the new forex sales policy, all commercial bank branches will create a separate desk for the purpose. The CBN henceforth channels all forex allocation through the commercial banks. The apex bank head also asked banks to ensure that every deserving customer got their forex demand, adding that any bank found circumventing the new system would be sanctioned.

“Once a customer presents all required documentation to purchase forex, the commercial banks should ensure they get the forex. Any customer that is denied should contact the CBN on 0700385526 or through the email- [email protected]”, CBN governor said.

Reason for the decision

The BDCs were regulated to sell a maximum of $5,000 per day, but CBN said it observed that they have since been flouting that regulation and selling millions of dollars per day. The CBN said it also observed that the BDCs aid illicit financial flows and other financial crimes. “The bank has thus decided to discontinue the forex sales to BDCs with immediate effect”, it said.

Has CBN taken such decision against BDCs before?

As part of measures to reduce the pressure on the nation’s foreign reserves, the Central Bank of Nigeria had in 2016 stopped the sale of forex to Bureaux de Change (BDCs).

As the policy was being announced then in January 2016, the local currency completely reversed its Christmas gains, hitting a then low of N283/$ in BDCs and the parallel markets.

The currency had gained from low business cycle of Yuletide and informal supplies from returning Nigerians, appreciating to N265/$1 against N281/$1 it recorded in the middle of December 2015. Emefiele who had announced the policy change in 2016 said BDCs were to source forex from the autonomous market.

“Despite the fact that Nigeria is the only country in the world where the central bank sells dollars directly to BDCs, operators in this segment have not reciprocated the bank’s gesture to help maintain stability in the market”, CBN governor had said in 2016.

Was the decision reversed?

Barely seven month after, (August 2016) the Central Bank of Nigeria after a meeting with the leadership of Association of Bureau de Change Operators of Nigeria (ABCON), the umbrella body of BDCs in the country resumed dollar sales to BDCs in a bid to arrest the continued depreciation of the Naira in the parallel foreign exchange market as well as reduce opportunity for round-tripping. BDCs had assured to abide by the directives of the CBN and continually provide detailed reports on how previous dollars sourced from the CBN were utilised.

Market reaction to the apex bank decision

Naira on Wednesday hit N522 per dollar as traders in the parallel market, popularly known as the black market, were seen hoarding dollars for fear of losing money. With the latest rate, Naira has lost 3.36 percent compared with N505/ traded on Tuesday.

Across the streets, Naira fell to N530 per dollar from N505/$ on Tuesday. This represents a 4.95 percent loss in the value of Naira against the US dollar in one day. Some Lagos Street traders were selling dollars between N528 and N530 per dollar as at press time.